A tale of two parties | Pakistan Today

A tale of two parties

All recent incoming governments in Pakistan have faced crises of various forms – the current one having its share of crises compounded by COVID.  This government had promised a new approach to governance and addressing Pakistan’s manifold problems, and it is useful to assess and compare its approach and efficacy in the face of a specific crisis with that of its predecessor.

PTI used an evidence based approach using professionals that took longer to analyse the issues, but eventually came up with reasonably suitable solutions.  PML-N used its own leadership and was eager to use such issues to further the political and financial objectives of its leaders.

Energy Crisis – PML-N

PML-N inherited the Energy Crisis from previous governments but was well aware of its causes. As part of its election manifesto in August 2012, it unveiled the “three Es strategy” (Energy, Economy and Education) and tried to pave the roadmap to solving the country’s crisis, vowing to end load shedding within two years of forming the government.

At that time the main reason the country was in a quagmire was due to unaffordable power, a result of the disastrous IPP policy implemented by PPP and successive governments[1], Pakistan was heavily dependent on expensive imported fuel and inefficient power plants. By 2013 over 55% of the country’s energy mix was dependent on imported fuel and take or pay purchase agreements heavily tilted in the investors favour leaving the country to bear all the risk.

In 1995 when the policy was written, oil was at $18/barrel and the rupee dollar exchange rate was 23. By 2013 oil was at $105/barrel and the rupee was 100/$, in rupee terms the price of fuel increased by 25 fold, rendering the power from these plant unaffordable. However under the take or pay agreement the entire risk including plant inefficiencies was borne by WAPDA, even today, WAPDA continues paying millions of dollars of “capacity payment” for idle power plants, despite that their power is uneconomical.

Upon assuming power, Prime Minister Nawaz Sharif appointed his brother and Chief Minister of Punjab Shahbaz Sharif as the energy Czar, who with trusted advisors, including  bureaucrat Ahad Cheema, set about implementing the energy policy. This resulted in the creation of policy driven by political objectives. The obvious solution could have been to renegotiate the IPP agreements and replace the crude oil-fired power plants with ones that use local fuel, or with renewable energy, as well as improve distribution losses. However, the solution favoured by PML-N further increased the country’s dependence on imported LNG and imported coal.[2] This was in line with the PML-N political objectives namely maximizing the installation of plants in Punjab (as opposed to rural Sindh, KPK or Baluchistan); ensuring that the plants are operational by May 2018 in time for the election; and signing secretive long term fuel purchase agreements that could not be opened for scrutiny in subsequent years.

By 2015 it was obvious that the price of LNG was going to fall; as the US was surplus in energy and for the first time President Obama allowed US energy exports. At the same time; Australia was developing major LNG capacity and supply outstripped demand. However as prudent buyers moved to short term contracts based on other indices such as Henry Hub, Platts JKM etc., Pakistan further disadvantaged itself in Feb. 2016, by signing a large 15 year Long Term Sales Agreement (LTSA) with Qatar for LNG at 13.35% of Brent price. Currently, the LNG spot price is less than half the price, that Pakistan is paying for LNG from Qatar under the LTSA.

Today the price of power from a LNG power plant fuelled by Qatar gas is approximately 8 cents/unit as compared to 6 cents/ unit for Thar coal power.  The price of Thar coal is not entirely dependent on the rupee and with economies of scale, since 2017 the price Thar coal price has decreased by $20/ton. This option would have been a far more reasonable course for the PML-N government to adopt.[3] Thus had the 3,600 MW of LNG been based on Thar coal the country would be saving $500 million/year, or approx. $12.5 billion over the project life of 25 years.

PTI Response to Energy Crisis

Upon assuming power Prime Minister Imran Khan appointed a high level committee headed by Nadeem Baber Special Assistant to the Prime Minister (SAPM), Shahzad  Qasim, and others. The committee put in place a blanket ban on all power projects using imported fuel[4]. In 2019, this committee formed the Committee for Power Sector Audit, Circular Debt Resolution and Future Roadmap comprising of various professionals including financial auditors. The 300 page report of this committee was published in March 2020, and recommended several steps[5] to alleviate the situation including shifting tariff from USD to Pak Rupee, end Take or Pay agreements, establish a committee for forensic audit etc.

On August 14th 2020, the government announced that it had signed a MOU with the IPP converting the Return on Equity (ROE) Component from USD to Pak Rupee with a 17% ROE at a parity rate of 148/ USD. The jury is still out, and it will not entirely solve the circular debt problem, but will go some way in alleviating the problem, as some component of the tariff will not increase due to rupee depreciation. Obviously major efforts are still needed to reduce the losses at the distribution level.

In August 2020 the government also issued the proposed energy mix for 2030 which envisages reducing the imported energy component of the total mix to 23 %[6] with more emphasis on renewables. It also issued the renewable power policy encouraging setting up of renewable power that to be bid on an annual basis based on the expected increase in load (so as to avoid idle capacity charges).  This policy will reward investors who avoid indexing the new power tariff to the dollar. Under this policy, recently the govt. awarded a wind power project at 4.7 cents/unit. Due to recent improvements in solar panel efficiencies, the price of solar power will be at least comparable if not even more economical. PML-N on the other hand had awarded the Quaid Azam solar park at a mouth-watering 12 cents/unit.

I have known both Nadeem Babar and Shahzad Qasim for some time, both are thorough professionals. Previously Nadeem Babar was also advisor to Shahbaz Sharif. I am sure he would have proffered the same advice to PML-N, but perhaps the then government was not interested in acting upon his advice.

COVID-19 Crisis – PTI

COVID 19 struck in Feb 2020, and by all counts, PTI’s initial response to the crisis was at best scratchy. It allowed the annual Tableeghi Jamaat Ijtma to go ahead despite numerous warnings that the disease was widespread abroad, and mismanaged the quarantining of Zaireen from Iran.

As the threat of the pandemic increased, the government got onto its feet and set up a National Command Operating Centre (NCOC) to centralize and disseminate the information, lockdown measures were introduced throughout the country, and constant liaison with the provincial health ministers and their focal persons who were primarily responsible for the execution.

A taskforce to manage the crisis was promptly put in place that included epidemiologists and technology experts to help alongside prominent members of the armed forces. The group promptly set up protocols for sharing information and the vital “track and trace” operations.

Today as COVID-19 cases reduce, the economy can open up further. Based on the latest Moody’s report, the country’s GDP for next year may well increase by 2% unlike the earlier prediction that it may contract by up to 6%. Thus, the PTI’s approach to this crisis- unlike in other South Asian neighbours where the pandemic still rages unabated, has saved the country approximately $20 billion in avoiding impaired GDP growth.

As demonstrated above two examples, there is a fundamental difference in approach between PTI and its predecessors. Unlike previous elected governments, even at the cost of short term political capital, and despite intense pressure from the opposition and dissenting voices, PTI persevered with its informed and experiential decision making process.

Unfortunately, this approach is yet to be utilized by PTI for other urgent issues, such as civil service reforms, police reforms, controlling of food prices, and introduction of a decentralized local government. For power the lesson is clear the future lies in increasing renewable share of power and improving the distribution network. The approach should be demand based, as with increasing availability of economical roof top solar; there will be a compression in demand.

Critics, especially from PTI, must appreciate that the complex issues require time and expertise to resolve. Let’s hope that for large infrastructure projects, future governments understand that these are high risk, multi-election projects. Without due process of risk management, planning and more importantly professional management- all of which need time. Shortcuts or political directions result in errors wasting huge sums of money and can seriously damage the economy with long lasting effects.

[1] Under the IPP policy 1995, private investors were offered to set up power plants in the country under take or pay power purchase agreement. The government was obligated to purchase 60% of the power regardless of its economics or need.

[2] Of the 6,600 MW of power installed, 55% relied on imported LNG, 35 % on imported coal and only 10% on local coal.

[3] As per EIA the price of Brent oil in 2021 is forecast to be around $ 70/ barrel which excluding any rupee depreciation translates into a LNG power cost of 9.5 cents/unit. On the other hand, with increased cost efficiencies in coal mining, the price of Thar coal power may drop to 5.5 cents/unit, or almost half that of the Qatar LNG plants, further widening the gulf.

[4] This was subsequently reversed for advanced power projects under the CPEC program.

[5] For further read page 152 of the report Implementation Plan.

[6] This mix is similar to the energy mix I had proposed in 2015 in an article for dawn.com

Abbas Hasan

The writer is an engineer and a cricket fan who works in the Middle East. He can be reached on Twitter at: @A3bbasHasan



2 Comments

  1. Skooby said:

    N league did whatever it had promised. PM Khan only sold dreams and made a mockery of Pakistan.

  2. Imran Igra said:

    “Thus, the PTI’s approach to this crisis- unlike in other South Asian neighbours where the pandemic still rages unabated, has saved the country approximately $20 billion in avoiding impaired GDP growth.“

    This alone is a huge accomplishment of Imran Khan Government. If opposition were to stop being pain in the you know what, the Govt. Can deliver even more,faster and efficiently.

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